Emkay Research has reiterated its BUY recommendation on Kajaria Ceramics, raising the target price to Rs 1,550. The decision stems from sustained margin expansion driven by cost-saving initiatives and strong brand leadership, even as near-term demand remains muted. Despite flat sales volumes in the recent quarter, robust profitability and a strategic revamp aimed at deeper market penetration underpin optimistic future prospects. Investors are advised to consider Kajaria’s sturdy balance sheet, elevated EBITDA margins, market leadership, and prudent cost controls as central pillars for value accretion. The current upside potential stands at approximately 24%.

Key Recommendation and Target Price

Emkay Research Reaffirms BUY Call Emkay Research maintains its BUY recommendation for Kajaria Ceramics, reflecting confidence in the company’s operational strength and strategic pivots.
Revised Target Price – Rs 1,550
The target price has been elevated to Rs 1,550 (from Rs 1,450), representing a 6.9% increase. The target is premised on a 42x Sept-27E price-earnings multiple, reinforcing the conviction in Kajaria’s resilience and growth trajectory.

Upside Potential for Investors
At the current market price of Rs 1,251, the stock offers a substantial upside of nearly 24%, making it an attractive proposition for long-term investors.

Operational Performance – Margins Outperform Amid Flat Volume

Margin Profile at Multi-Year High Kajaria Ceramics delivered a stellar improvement in profitability, with Q2FY26 EBITDA margins surging by 450 basis points year-over-year (YoY) to 18.0%. Cost controls—including unification of business divisions, human resource optimization, and packaging cost reductions—have shifted the margin profile to the 17–18% range, well above earlier norms.
Volume Muted, Revival Expected
Sales volume was largely flat at 28.9 million square meters in Q2FY26, attributed to subdued demand, intense monsoon impact, and ongoing internal restructuring. However, management anticipates a recovery from Q3FY26 as the company targets deeper market penetration, especially in tier 2 and 3 cities and through B2B channels.

Strategic Initiatives Fueling Long-term Growth

Internal Revamp and Market Reorientation Ongoing internal revamp—including the unification of tiles divisions and targeting of architects, designers, and influencers—positions Kajaria for accelerated market share gains. The focus is now on expanding its presence beyond metros, with special emphasis on underpenetrated geographies.
Sanitaryware Turnaround to Bolster Profitability
The sanitaryware division is strategically primed for profitability in FY26, further enhancing consolidated EBITDA margins. Continuous cost-rationalization and procurement efficiencies are slated to support sustainable margin levels.

Financial Snapshot: Strong Balance Sheet and Enhanced Returns

Cash-Rich, Low Leverage The balance sheet remains exceptionally sturdy, boasting net cash of Rs 5.9 billion and a net debt-to-equity ratio of -0.2x as of Q2FY26. This financial flexibility enables robust capital deployment for strategic initiatives and risk mitigation.
Return Metrics on an Uptrend
Both return on equity (RoE) and return on invested capital (RoIC) are projected to rise, with RoE forecast to move from 12.8% in FY25 to 18.6% by FY28, and RoIC from 14.7% to 23.8% over the same period.

Growth Outlook and Revised Estimates

Moderated Volume CAGR, Upgraded Margins Considering current market headwinds, sales volume CAGR for FY25–28E has been moderated to 6.1% versus 8.7% earlier. Conversely, increased operating efficiencies have led to a hike in expected EBITDA margins by 160–190bps to approximately 17–17.5% across FY26–FY28.
Upward Revision in Key Profit Metrics
Recent changes in management estimates reflect:

Increased EBITDA by 10% for FY26E and 6% for FY27E.

Upward adjustment in adjusted PAT (profit after tax) by 12% and 7% for FY26E and FY27E, respectively.

Quarterly and Financial Highlights

Valuations and Investor Considerations

Attractive Relative Valuation Kajaria Ceramics currently trades at a forward PE of 40.4x (FY26E EPS), moderating to 31.9x by FY28E. The price-to-book ratio (PB) is expected to fall from 7.3x in FY25 to 5.7x by FY28, making the risk-reward profile increasingly compelling as earnings accrete.
Dividend and Free Cash Flow Yield
The dividend payout ratio remains attractive, with a projected rise in dividend per share to Rs 18 by FY28. FCFF (Free Cash Flow to Firm) yield is expected to grow from 2.1% in FY25 to 3.5% in FY28, reflecting sound cash generation capacity.

Investment Risks and Key Monitorables

Demand Headwinds and Execution Risks Notwithstanding the strategic reset, demand remains a short-term concern, stemming from sectoral sluggishness and broader macro volatility. Investors should remain vigilant regarding the pace of volume recovery and margin sustainability in a scenario where input costs could rebound.

Bottomline: Persuasive Case for Accumulation

In summary, Emkay Research’s bullish stance on Kajaria Ceramics derives from the company’s proven capability to deliver margin expansion, robust operational discipline, and a forward-thinking go-to-market strategy. With the stock trading below its revised target and offering a nearly 24% upside, long-term investors stand to benefit from both earnings growth and enhanced shareholder returns.